Did you know that only half the adult population in the world has access to a bank account? More than 3 billion people don’t have access to savings accounts, and they are predominantly the world’s poorest people who live on less than US$2 per day.
Imagine that you were one of them. You don’t have a savings account, an ATM card, or a check book. You are probably thinking: if I lived on less $2 per day, why would I need a bank account? You live hand to mouth. You can’t plan for the future. You can’t save.
I’d like to challenge you to think about savings in a different way. Savings accounts aren’t just for the well off. The fact is everyone needs ways to manage money – especially the world’s poor. Poor households with access to savings not only have a tool to help them manage emergencies and other unexpected events, they also have a tool to help lift themselves out of poverty.
Imagine for a moment that you were one of the 2.5 billion people living on less than a $2 per day. What’s that like? Imagine how hard it is to survive on that. Survive you would, you’d have no choice. But just imagine how much you’d value the extra $1 or $2 you make on a good day, when opportunity came your way. You ought to have a safe place to store that little treasure. You want to be able to store those small daily amounts to be able to draw on them during the bad days. If possible, you’d want them to accumulate over a period so that you can buy something more substantial with that money.
So if you don’t have a bank account, how would you save? Informal methods of saving are risky and expensive and force you to bleed enormous amounts of cash. A study in Uganda, for example, showed that among households without access to bank accounts, 99% of the people surveyed lost an average of 22% of the amount saved in the informal sector.
But imagine if you had a safe, reliable savings account where you could save a dollar or two at a time and withdraw it easily when you needed it. A dollar or two at a time is not much money but it can have a huge impact in your life.
Let me stress how real the need to save by poor people is. Of the 6.8 billion people in the world, almost 40%, or 2.6 billion people, live on less than $2 a day. Let us take a look at who these people are, and in particular the 1.6 billion who are the bread-earners (the other 1 billion are their dependents).
The biggest chunk, 610 million, are small-holder farmers. Do they save? Of course they do, all their income is concentrated in one or two periods during the entire year. Most of the time, they are living off their savings.
Then there are the 370 million casual laborers. Many are paid daily, and they need to insulate their daily expenditures from this income volatility, and that’s a saving story.
The 300 million salaried have more income stability, but still, their daily income is low, they need to accumulate small amounts from their daily wages to be able to pay school fees when they are due or some house repairs. Income comes in small bits, but some expenses are chunkier.
Then there are the 180 million people whose primary occupation is some micro-business. These are the folks that traditional microcredit addresses, but note that it’s a relatively small proportion of the poor. They need money to invest in their micro-business. If you think microcredit is a good opportunity for them, imagine how much more they could do if they could self-fund that through savings and not have to pay interest instead.
And for all of them, savings can protect them against shocks. That’s a big one. We tend to think of the poor as a uniform mass of people who trundle along. The reality is that if you observe a group of poor people over, say, five years, a significant fraction of them will have escaped poverty during this time. The problem is that just as many will have fallen back into poverty because of some kind of shock. A health problem, a failed crop can set them back many years. But if people had good savings cushions or insurance mechanisms, they would be able to weather these shocks without setting them back many years.
We have seen that poor people have a tremendous need for financial services. So the question is: where are the banks in all of this? Why are they not helping more poor people to achieve these small feats with their money?
[Ignacio Mas has written a paper titled “New opportunities to tackle the challenge of financial inclusion” where he reviews the relevance of formal financial services to the poor people and offers interesting solutions to the above questions. Click here to read the paper.]